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Kaiser Foundation Health Plan, Inc., et al v. the Superior Court of Los Angeles County

February 15, 2012

KAISER FOUNDATION HEALTH PLAN, INC., ET AL., PETITIONERS,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT. ANNA RAHM ET AL., REAL PARTIES IN INTEREST.



(Los Angeles County Super. Ct. No. BC441742) APPEAL from an order of the Superior Court of Los Angeles County. James R. Dunn, Judge. Affirmed.

The opinion of the court was delivered by: Zelon, J.

CERTIFIED FOR PUBLICATION

INTRODUCTION

Anna Rahm and her parents, Lynnette and James Rahm, filed a complaint against Kaiser Foundation Health Plan and two Kaiser health care providers. The complaint alleged that the defendants had devised an insurance compensation scheme that induced Kaiser's physicians to deny costly medical services to plan members. Plaintiffs asserted that, as a result of the scheme, Kaiser's health care providers had improperly delayed an MRI for Anna, resulting in significant injuries. The complaint included four causes of action against each defendant and sought punitive damages for breach of the implied covenant of good faith and fair dealing and intentional infliction of emotional distress.

Defendants filed a motion to strike the punitive damages allegations arguing that plaintiffs had failed to comply with the requirements of Code of Civil Procedure section 425.13, subdivision (a). The trial court ruled that statute did not apply to plaintiffs' punitive damages claims and denied the motion.

Defendants filed a petition for writ of mandate seeking an order directing the superior court to grant the motion to strike. We summarily denied the petition and defendants filed a petition for review in the California Supreme Court. While defendants' petition for review was pending, plaintiffs dismissed their punitive damages claims against the Kaiser health care providers. The Supreme Court granted review and directed this court to issue an order to show cause; this court issued that order on August 25, 2011.

We now conclude that plaintiffs were not required to comply with section 425.13 because: (1) the statute does not apply to plaintiffs' claims against Kaiser Foundation Health Plan, and (2) plaintiffs have dismissed their punitive damages claims against the health care provider defendants.

FACTUAL AND PROCEDURAL BACKGROUND

A. Summary of Facts Preceding Plaintiffs' Lawsuit*fn1 [1]

Anna Rahm is a member of the Kaiser Permanente Traditional Plan (the plan), which provides its members medically necessary health care in exchange for monthly premiums. In August of 2008, Anna began experiencing back pain. Anna's parents, Lynnette and James Rahm, took Anna to a chiropractor. After the treatments failed to alleviate Anna's pain, the chiropractor recommended that Anna "consult with a medical doctor because she was in need of an MRI."

In March of 2009, Anna met with Charlene Huang, a primary care physician at Kaiser. Lynnette accompanied Anna to the appointment and requested that her daughter receive an MRI. Although Huang acknowledged that Anna's chiropractor had determined that her back pain was "'severe,'" Huang refused to order an MRI. Huang referred Anna "to the physical medicine department at [Kaiser] and also prescribed pain medications and steroids, a much less expensive treatment than an MRI. . . ." Anna took the prescribed medications but her pain persisted.

Two weeks later, on March 24, 2009, Anna met with Ngan Vuong, a physical medicine doctor at Kaiser. Lynnette accompanied Anna to the appointment and again requested that Anna receive an MRI. Vuong, however, recommended that Anna receive an epidural and suggested that her pain could be remedied through changes to her nutrition and exercise habits. Lynnette told Vuong she did not want her daughter to receive an epidural and renewed her request for an MRI. Voung refused to authorize an MRI.

In April of 2009, Anna sought acupuncture treatment for her pain. The treatments were unsuccessful and the acupuncturist recommended that Anna request an MRI from her doctor. Lynnette called Vuong and informed her that Anna's acupuncturist had recommended an MRI. Vuong again declined an MRI and referred Anna to Kaiser's physical therapy department.

In May and June of 2009, Anna continued her acupuncture treatments. Two different acupuncturists concluded that Anna was in need of an MRI. Anna also attended several physical therapy sessions at Kaiser, but was forced to discontinue the treatments because they were too painful. Kaiser's physical therapy department "recommended that [Anna] receive an MRI."

Lynette called Vuong again and explained that a chiropractor, two acupuncturists and Kaiser's physical therapy department had all recommended an MRI. Vuong rejected these recommendations because they were not made by medical doctors, but invited the Rahms to seek a second opinion.

Lynnette elected to schedule a meeting with another doctor. Prior to the appointment, Lynnette contacted Huang, Anna's primary care physician, "as a last ditch effort" to get an MRI. Lynnette summarized the treatments Anna had undergone since her initial visit with Huang. Huang finally agreed to authorize an MRI, which was performed on July 2, 2009.

Anna's MRI indicated that she had an "aggressive mass" in her pelvis. A biopsy revealed that Anna was suffering from a "high grade" osteosarcoma, which is "one of the fastest growing types of osteosarcoma, meaning that [Kaiser's] three month delay in ordering [Anna's] MRI allowed the cancer to spread and ultimately substantially contributed to [Anna's ] poor prognosis." Anna underwent chemotherapy and had numerous surgeries that resulted in the loss of her right leg and portions of her pelvis and spine.

B. Plaintiffs' Complaint

On July 15, 2010, Anna and her parents filed a complaint against Kaiser Foundation Health Plan (Kaiser Health Plan or Health Plan), which administered Anna's health care plan. The complaint also named Kaiser Foundation Hospitals (Kaiser Hospitals) and Southern California Permanente Medical Group (SCPMG), which contract with Kaiser Health Plan to provide hospital and medical services to the Plan's insureds. The complaint asserted four causes of action against each defendant: (1) breach of the implied covenant of good faith and fair dealing; (2) breach of contract; (3) negligent infliction of emotional distress; and (4) intentional infliction of emotional distress.

Plaintiffs alleged that the defendants, who were collectively referred to as "KAISER," had devised "a system of withholding benefits from insureds which necessarily results in KAISER unreasonably depriving its insureds the benefits of their contacts with KAISER. This system is one where KAISER has bestowed upon its contracted physicians the responsibility of determining whether or not to give insureds benefits under their contracts. Underlying this system is a cost saving component: each determination a KAISER physician makes must be based, in part, upon the cost to KAISER of the treatment or care requested. [¶] . . . [T]his system, with a heavy emphasis on cost saving to KAISER, results in pressures on KAISER's physicians that removes (sic) the physicians' abilities to give medical care which is in the patient's best interests. This system also results in little or no investigation by KAISER as to whether a patient is in need of certain medical care and/or treatment. This system is concealed from KAISER's insureds and ultimately causes them harm."

The complaint further alleged that Kaiser's "physicians are rewarded for adhering to the cost saving system that KAISER has put into place. Specifically, that the physicians receive bonuses which are dependent upon the cost savings realized by KAISER due to the physicians withholding of treatment and or care of the insureds."

In describing their individual causes of action, plaintiffs alleged that defendants had breached the implied covenant of good faith and fair dealing by: (1) "unreasonably denying and delaying care and treatment to Anna that was covered under [the plan]"; (2) "unreasonably avoiding incurring expenses for diagnostic testing . . . for its own financial gain by ignoring the seriousness of Anna's medical condition and needs"; (3) "placing its own financial interests ahead of Anna's health care"; and (4) "unreasonably engaging in a pattern and practice of failing to conduct a thorough, fair and balanced investigation in evaluating requests for benefits and/or services for its members under [the plan]."

Plaintiffs' claim for intentional infliction of emotional distress alleged that the defendants "refus[ed] to grant [Anna's] requests for diagnostic testing, even though defendants knew, or should have known, that the medically necessary diagnostic testing was covered under the [plan]. Defendants knew, or should have known, that their refusal to approve diagnostic testing for [Anna] caused [Anna, Lynnette and James] to be fearful and extremely worried about [Anna's] condition." The complaint further asserted that defendants "intentionally . . . and unfairly refused to provide [Anna] with the requested, medically necessary care," thereby causing Lynnette, James and Anna to "suffer[] fear, depression, humiliation, and severe mental anguish and emotional and physical distress."

Plaintiffs' claims for breach of the implied covenant and intentional infliction of emotional distress each included an allegation asserting that the defendants' misconduct "constitute[d] malice, oppression or fraud under California Civil Code section 3294, thereby entitling plaintiffs to punitive ...


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